| Regulatory and Reporting Developments |
United States
Environmental Protection Agency (EPA) Completes the Launch of Greenhouse Gas Reduction Fund Opportunities
On July 14, 2023, the EPA announced two notice of funding opportunities for up to $20 billion. Up to $14 billion will be allocated via the National Clean Investment Fund through a competition that will provide grants to two-to-three national nonprofit clean financing institutions that can partner with the private sector to fund clean technology projects, with at least 40 percent of the capital going to low-income and disadvantaged communities. Up to $6 billion will be allocated via the Clean Communities Investment Accelerator through a competition that will provide grants to two-to-seven nonprofits that can provide funding and technical assistance to local community lenders working in low-income and disadvantaged communities to develop clean financing capacity. Applications for each competition must be submitted by October 12, 2023.
Both programs are part of the Greenhouse Gas Reduction Fund, an element of the Inflation Reduction Act (IRA) that authorized $27 billion to mobilize investment in clean energy in low-income and disadvantaged communities. The two July announcements follow the EPA’s June 28, 2023, announcement of the notice of funding opportunity for $7 billion via the Solar for All program, which will allocate funds through a competition that will provide up to 60 grants to states, territories, Tribal governments, municipalities, and nonprofits to expand residential solar installations in low-income and disadvantaged communities.
U.S. Department of Energy (DOE) Closes Comment Period on Demand-Side Hydrogen Initiative
Last month, the DOE, through a notice of intent (NOI), solicited industry feedback on how it could best support demand for clean hydrogen produced by its Regional Clean Hydrogen Hubs (H2Hubs) program. The DOE intends to invest up to $1 billion over multiple years in demand-side mechanisms that support clean hydrogen off-takers for the H2Hubs program. The NOI sought industry feedback on program design and structure, with an emphasis on how the H2Hubs program could best complement existing incentives, including hydrogen tax credits, and how the program could streamline the development of standard offtake contract terms and price transparency. The comment period for the NOI closed on July 24, 2023. The DOE has not yet provided details on when it plans to release a funding opportunity announcement that incorporates the feedback solicited in the NOI.
Commodity Futures Trading Commission (CFTC) Announces Task Force to Address Fraud in Carbon Markets and Convenes Second Meeting on Voluntary Carbon Markets
In an effort to combat fraud and manipulation in voluntary carbon markets, in late June 2023, the CFTC created the Environmental Fraud Task Force. The Environmental Fraud Task Force will prosecute fraud and misconduct related to claims made in derivatives and spot markets about the purported environmental benefits of purchased carbon credits and misrepresentations about ESG products and strategies. In July 2023, the CFTC convened its second meeting on the voluntary carbon markets, addressing recent private sector initiatives for high quality carbon credits; current trends and developments in the cash and derivatives markets for carbon credits; public sector initiatives related to carbon markets; and market participants’ perspectives on how the CFTC can promote integrity for high quality carbon credit derivatives. Comments from the Commissioners asserted the CFTC’s ability to regulate the voluntary carbon credit spot market against fraud and manipulation as within the CFTC’s authority.
Please see our client alert for additional information related to the Environmental Fraud Task Force and other related CFTC initiatives.
U.S. Patent and Trademark Office (USPTO) Extends Pilot Program to Accelerate Patent Examination Based on Climate Change Mitigation
The USPTO recently extended the Climate Change Mitigation Pilot Program—in which qualifying utility nonprovisional applications are advanced out of turn (i.e., accorded special status)—until a first action on the merits is complete, into an expanded second phase. Originally implemented on June 3, 2022, the initial phase of the Climate Change Mitigation Pilot Program ended June 5, 2023. The initial phase was focused on innovations that reduce greenhouse gas emissions. The second phase, which started on June 7, 2023, will continue until either June 7, 2027, or the date the USPTO accepts a total of 4,000 grantable petitions (considering petitions granted under both the phase 1 and phase 2 programs), whichever occurs first. This second phase of the Climate Change Mitigation Pilot Program is expanded to a broader range of technologies designed to support progress toward achieving net-zero emissions, such as products or processes designed to: 1) remove greenhouse gases already present in the atmosphere; 2) reduce and/or prevent additional greenhouse gas emissions; and/or 3) monitor, track, and/or verify greenhouse gas emission reductions.
U.S. Securities and Exchange Commission (SEC) Releases Sample Letter to Companies Regarding China-Specific Disclosures
On July 17, 2023, the SEC released a sample comment letter addressing China-specific company disclosures. Several of the sample comments relate to “Commission Identified Issuers” under the Holding Foreign Companies Accountable Act, and one sample comment asks for additional detail about the risk of government intervention into and control of the business. The last sample comment asks for disclosure by a company with operations in, or with counterparties that conduct operations in, the Xinjiang Uyghur Autonomous Region (XUAR) about how the business is impacted by the Uyghur Forced Labor Prevention Act, which prohibits the importation of goods from the XUAR as a means of thwarting forced labor.
Maine Considers Advancement in Power Grid Operations to Unlock Grid-Edge Technologies
Last month, Maine enacted legislation requiring the state to explore the establishment of a Distribution System Operator (DSO) to: 1) oversee integrated system planning for the distribution grids used to deliver electricity from the interstate transmission system to consumers in the state; 2) operate those distribution systems; 3) administer an open market for distributed energy resources (DERs); and 4) help achieve Maine’s greenhouse gas reduction obligations and other climate policies. The bill requires selection of a qualified consultant by January 1, 2024, to study a DSO’s ability to reduce consumer electricity costs, improve electricity system reliability, and accelerate the deployment of DERs and the achievement of Maine’s climate goals. If the study shows that a DSO could achieve those goals, the consultant will conduct a second study to develop a specific DSO design proposal. If ultimately implemented, the DSO proposal could facilitate better coordination between Maine’s distribution systems and the regional transmission system operated by ISO New England, Inc. (ISO-NE), establish an open DER market similar to the wholesale power market administered by ISO-NE, use real-time energy data to optimize system operations, and optimize the use of battery storage systems interconnected to Maine’s electricity distribution system. The law will take effect in September 2023 and requires the Governor’s Energy Office to submit a final report to Maine’s legislature by January 1, 2025. The law requires the state to provide meaningful opportunities for stakeholder engagement during the study process.
Europe
European Commission (EC) Adopts Negotiating Directives for Electric Vehicle (EV) Critical Minerals Deal with U.S.
Last month, the EC approved negotiating directives for a potential critical minerals trade partnership with the U.S. supporting the production of EV batteries. The approval is the most recent development in a lengthy effort between the U.S. and the European Union (EU) to establish a trade agreement supporting EV supply chains. After the U.S. enacted the IRA, which contained a number of incentives to support the development of a U.S. clean technology supply chain, the EU adopted the Green Deal Industrial Plan to support the competitiveness of Europe's net-zero industry. As discussed in our March update, U.S. President Biden and EC President von der Leyen began negotiations earlier this year on an agreement centered on extending IRA section 30D tax credits for critical minerals extracted or processed in the EU. Following their approval by the EC, the Council of the EU must now authorize the negotiating directives before the EU can begin formal negotiations with the U.S. on the critical minerals agreement.
EC Proposes New Biodiversity and Waste Legislative Package
On July 5, 2023, the EC adopted a waste and biodiversity package under the “natural resources” pillar of the European Green Deal. The package includes proposals for: 1) a new soil monitoring law; 2) new rules on food and textile waste; 3) new rules on new genomic techniques; and 4) regulations on the production and marketing of plant and forest reproductive material. The new soil monitoring law aims to give soil a legal status similar to that of air and water and seeks to establish an EU-wide monitoring framework of soil damage and rules for sustainable soil management. The proposed food and textile waste rules seek to establish new legally binding targets (e.g., restaurants, food services, and households must reduce food waste by 30 percent) and mandatory producer responsibility schemes (e.g., textile producers should cover the costs for waste management generated by their products). The proposed new rules on new genomic techniques strive to facilitate market access for plants created using newer gene-editing tools that can help increase the sustainability and resilience of the food system. Finally, the law on plant and forest reproductive material promises to streamline the registration and certification process for new plant varieties and measuring their resilience through sustainability testing (e.g., disease resistance). These proposed laws must still go through the EU legislative process and may be subject to amendment and revision, if they pass into law.
United Kingdom (UK) and France Adopt Joint Biodiversity Initiative
On June 22, 2023, the UK’s Environment Secretary and French State Minister launched a Global Roadmap (the Global Roadmap) to support the private sector’s contribution to nature recovery by expanding the market for biodiversity credits. These credits, like carbon credits, allow companies to invest in projects that contribute to nature recovery (e.g., in a rainforest, ocean, grasslands, or other habitats globally), with these companies then receiving credits based on the project’s environmental impact. Biodiversity credits record the project’s location, developer, and measurement and verification processes for transparency. The Global Roadmap includes suggestions to improve governance and monitoring mechanisms and the fair redistribution of income to indigenous people and local communities through biodiversity credit funding, with the goal of mobilizing private financing for conservation and restoration efforts. The joint UK-French initiative aims to preserve and enhance ecosystem integrity, connectivity, and resilience, expanding natural ecosystem area by 2050, and aligning financial flows with the Kunming-Montreal Global Biodiversity Framework (also known as the “Paris Agreement for Nature”), by working with businesses and investors to unlock new finance streams for nature recovery. The Global Roadmap seeks to support the development of international milestones, which will be under discussion at the 2024 United Nations Biodiversity Conference (COP16), where financing for biodiversity is expected to be high on the agenda.
UK Financial Regulator Launches Draft Code of Conduct for ESG Ratings and Data Providers
On July 5, 2023, the UK Data and Ratings Working Group (DRWG), working within the remit of the UK’s Financial Conduct Authority (FCA), published a draft voluntary Code of Conduct for ESG Ratings and Data Product Providers. The Code sets out six best practice principles for ESG ratings and data products providers ranging from ensuring that appropriate governance arrangements are in place to securing quality through the implementation of written policies and procedures to ensure issuance of high quality ESG ratings and data products. The DWRG is an industry working group set up at the FCA’s request and brings together international stakeholders from the UK, the EU, and the U.S. representing ESG ratings and data products providers (e.g., asset managers, asset owners, and banks). Consultation on the draft will be open until October 5, 2023. Publication of the voluntary Code of Conduct follows the EC’s recent proposal for a Regulation on the Transparency and Integrity of Environmental, Social, and Governance (ESG) Rating Activities, which we discussed in our June update.
EC Unveils Proposed Green Freight Transport Measures
On July 11, 2023, the EC released a series of proposals targeting emissions reductions in road and rail freight transport. In an effort to incentivize the adoption of electric trucks, which typically feature heavy battery systems, the proposal would increase the maximum weight allowed for trucks. The proposals will now be considered by the European Parliament.
Asia
Chinese Ministry of Finance Extends Tax Breaks for New Energy Vehicles Through 2027
The Chinese Ministry of Finance announced that it would extend its existing tax breaks for eligible EV, hybrid, and fuel cell vehicles (NEVs) through 2027. Purchasers of NEVs in China in 2024 and 2025 will be eligible for a tax exemption of up to 30,000 yuan. Starting in 2026, the exemption will be halved to up to 15,000 yuan per purchase. The announcement marks the fourth time the Chinese Ministry of Finance has extended the tax break for NEVs.
Thailand Issues Phase One of Its Green Taxonomy
On June 30, 2023, the Bank of Thailand, Thailand’s Securities and Exchange Commission, and the Climate Bonds Initiative published Phase I of the Thailand Taxonomy, a classification system of economic activities deemed to be environmentally sustainable. Phase I of the Thailand Taxonomy focuses on economic activities relating to the energy and transportation sectors, which account for a significant share of the country’s greenhouse gas emissions and have high energy intensity. Thailand joins countries in the EU, the Association of Southeast Asian Nations, China, Colombia, and South Africa, among others, that have adopted environmental taxonomies to support transition finance.
The Monetary Authority of Singapore (MAS) Takes Steps to Improve ESG Reporting and Access to Climate-Related Data
On June 22, 2023, MAS, the United Nations Development Programme, and the Global Legal Entity Identifier Foundation executed a statement of intent to develop digital ESG credentials for micro, small, and medium-sized enterprises (MSMEs).
On June 27, 2023, MAS, the Secretariat of the Climate Data Steering Committee, and Singapore Exchange executed a memorandum of understanding to improve stakeholder access to key climate transition-related data.
On June 28, 2023, MAS launched a public consultation on a voluntary industry governance framework and code of conduct for providers of ESG ratings and ESG data products, which is modelled after the International Organization of Securities Commissions’ recommendations of good practices set out in its global call for action from November 2022. The proposed regime would be voluntary. The consultation ends on August 22, 2023.
Australia Releases Draft Guidance on Environmental and Sustainability Claims
The Australian Competition & Consumer Commission (ACCC) released draft guidance for business related to environmental and sustainability claims. The 39-page guidance outlines eight principles for trustworthy environmental claims: 1) make accurate and truthful claims; 2) have evidence to back up your claims; 3) do not hide important information; 4) explain any conditions or qualifications on your claims; 5) avoid broad and unqualified claims; 6) use clear and easy-to-understand language; 7) visual elements should not give the wrong impression; and 8) be direct and open about your sustainability transition. The draft guidance provides examples related to each principle, discusses the ACCC’s compliance and enforcement approach, and provides an overview of Australia’s legal framework around businesses’ sustainability claims.
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